About a year ago, Tesla Motors (NASDAQ:TSLA) became the first U.S. auto company to go public since Ford’s (NYSE:F) offering back in the 1950s. The company’s next-generation electric vehicles definitely excited investors.
However, after reaching about $35 per share, the stock’s performance has been mostly lackluster. Currently, it’s at $22.
Yet on its most recent conference call, the company’s CEO, Elon Musk, declared Tesla had its “best quarter” ever. Revenues doubled to $58.2 million, and the company raised its full-year top-line forecast to $190 million.
So is it time to take a ride on Tesla’s stock? Let’s take a look at the pros and cons:
Innovation. Tesla has a tremendous team that includes topnotch engineers from companies like Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL). Among their core technologies, Tesla vehicles feature a highly sophisticated powertrain that delivers high performance as well as zero tailpipe emissions. The company’s standardized approach to production means Tesla can develop new models quicker, which certainly would give it a competitive edge in the auto industry. The company has 35 issued patents and 207 pending.
Distribution. Tesla sells its cars through its own locations in the U.S., Europe and Japan. Kind of like an Apple store, Tesla’s store environment is sleek. In fact, you can use a computer to design your own car. By controlling its distribution, Tesla can better manage pricing and get valuable feedback from customers.
Model S. Expected to hit the market in mid-2012, this is a four-door, five-passenger sedan. It has premium styling and gets as much as 300 miles per charge (with the most advanced battery option). Oh, and it inclues a 17-inch touchscreen with in-car 3G connectivity. While the Model S is pricey — $49,900, including a $7,500 federal tax credit — customer demand for the car already is encouraging. So far, there already are 5,600 reservations, each of which required a $5,000 deposit.
Losses. Since its inception, Tesla has yet to make a profit (in the latest quarter, the loss was $58.9 million). Unfortunately, losses are likely to continue for the next couple years.
Market. Tesla faces significant competition in a product category still considered experimental. For example, GM (NYSE:GM) is selling its Volt and Nissan has the LEAF, but sales of those vehicles have been fairly disappointing so far.
Tough conditions. While Tesla’s first car — the Roadster — was stunning, it still could not attract much interest from customers (one big problem was the $100,000-plus price tag). Actually, the company recently ended Roadster production, which means the success of the Model S will be absolutely critical for shareholders.
Tesla’s cutting-edge technology has attracted top auto companies. For example, Tesla landed a $100 million contract from Toyota (NYSE:TM) to make batteries for Toyota’s RAV4 EV. And there might be another big contract in the works.
But again, Tesla is betting big on the Model S. It is a great vehicle, but it is far from clear whether it will gain enough customer acceptance.
So for investors, I think the cons outweigh the pros for Tesla’s stock.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.